Understanding Patent Trolls

One of the heart-stopping experiences for anyone in business is receiving a demand letter from a patent owner, claiming infringement. Our CEO recently held a popular workshop on this topic, the next three blog posts will cover the types of entities that are collectively referred to as trolls, their various business models, what an assertion is, and some steps you should take if receiving one of these letters.

Let’s start by examining the different types of companies that have been labeled as “trolls”; you might be surprised to learn not all of these entities are as ill-intentioned as the media often portrays them. 

Types of Non-Practicing Entities 

Non-Practicing Entities are commonly known as NPEs.  These organizations own patents, but don’t actually build products, so if they claim infringement by one of your products, you cannot counterclaim since they have no products that may infringe on your patents. 

One common type of NPE is a university technology transfer office (TTO).  TTOs are created to enable new products with the university’s intellectual property, and also to generate licensing revenue. TTOs can assert their patents against companies that make products to generate revenue for the university and to gain a return on their R&D.

Another type of NPE is the individual inventor.  This person was granted a patent, but didn’t build a commercial product, perhaps because they didn’t have the resources or desire.  Asserting to protect their IP can be an expensive proposition that could require millions of dollars to see a court case through the full process, so these types of NPEs are rare without some financial backing.

Patent Assertion Entities 

Also known as PAEs, these companies are founded for the purpose of buying and monetizing patents.  They may also represent companies that have created a substantial patent portfolio and want to generate a return on their R&D investment, but they no longer build products.

“Patent Trolls”

Recently, an emerging type of PAE has generated significant media exposure – they have a patent and send demand letters to hundreds or even thousands of (mostly small) businesses who use a technology feature rather than selling a product with the technology.

These broad assertions make news, and there are several bills in front of Congress that attempt to curb these kinds of behaviors.

The White House also weighed in last summer with a proposal to address the issue, including several executive actions that are in process.  The White House report estimated that over 100,000 companies were threatened by PAEs in 2012.

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